petersonbrief8-27 (2)sbtt biil 9-5-17sbttpmfinala mediquip llc v. unitedhealthcare ins. co., 662...
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_____________________________________________________________
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No. 17-1744
UNITED STATES COURT OF APPEALS FOR THE EIGHTH CIRCUIT
LOUIS J. PETERSON, D.C., Plaintiffs-Appellees,
v.
UNITEDHEALTH GROUP INC., Defendants-Appellants.
On Appeal from the United States District Court for the District of Minnesota
BRIEF FOR THE SECRETARY OF LABOR AS AMICUS CURIAE IN SUPPORT OF PLAINTIFFS-APPELLEES
NICHOLAS C. GEALE THOMAS TSO Acting Solicitor of Labor Counsel for Appellate and Special Litigation
G. WILLIAM SCOTT SUSANNA BENSON Associate Solicitor Senior Attorney for Plan Benefits Security Office of the Solicitor
Plans Benefits Security Division U.S. Department of Labor 200 Constitution Ave., N.W., N-4611 Washington, D.C. 20210 (202) 693-5682
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TABLE OF CONTENTS
TABLE OF AUTHORITIES ................................................................................... iii
QUESTION PRESENTED ........................................................................................1
THE SECRETARY'S INTEREST .............................................................................1
STATEMENT OF THE CASE..................................................................................2
A. Factual Background .......................................................................................2
B. Procedural History .........................................................................................5
SUMMARY OF THE ARGUMENT ........................................................................6
ARGUMENT .............................................................................................................8
United Acted Unreasonably In Interpreting The Plan Documents To Permit Cross-Plan Offsetting Because The Practice Violates ERISA. .................................8
A. Standard of Review ........................................................................................8
B. United's Practice Of Cross-Plan Offsetting Violates ERISA ........................9
C. Department of Labor Advisory Opinions Support The Conclusion that United's Practice of Cross-Plan Offsetting Violates ERISA .......................16
D. United's Defense of Cross-Plan Offsetting Is Meritless ..............................17
1. United's Cites Inapposite Authorities ....................................................17
2. United's Purported Justifications Cannot Override ERISA...................19
a. United's Violations Are Not a Permissible "Conflict-of-Interest" ..20
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TABLE OF CONTENTS-(continued):
b. Alleged "Overall" Benefits to its Customers Cannot Justify
Violations........................................................................................21
c. Failure to Contest Overpayment Is Irrelevant ................................22
3. Plans Cannot Consent to United's Practice of Cross-Plan Offsetting
Through "Negative Consent" ................................................................24
CONCLUSION ........................................................................................................28
CERTIFICATE OF COMPLIANCE CERTIFICATE OF SERVICE
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TABLE OF AUTHORITIES
Federal Cases:
32nd St. Surgery Ctr., LLC v. Right Choice Managed Care,
820 F.3d 950 (8th Cir. 2016) ......................................................................... 11, 23
Access Mediquip LLC v. UnitedHealthcare Ins. Co.,
662 F.3d 376 (5th Cir. 2011) reinstated,
698 F.3d 229 (5th Cir. 2012)(en banc) ................................................................. 23
Auer v. Robbins, 519 U.S. 452 (1997) ....................................................................................... 24 n.5
Barnhart v. UNUM Life Ins. Co. of Am.,
179 F.3d 583 (8th Cir. 1999) ................................................................................ 19
Boyle v. Anderson, 68 F.3d 1093 (8th Cir. 1995) .................................................................................. 2
Braden v. Wal-Mart Stores, Inc.,
588 F.3d 585 (8th Cir. 2009) ......................................................................... 10, 20
Brown v. BlueCross BlueShield of Tenn., Inc., 827 F.3d 543 (6th Cir. 2016) ......................................................................... 16 n.3
Central States, Se & Sw Areas Pension Fund, 472 U.S. 559 (1985) ......................................................................................... 9, 18
Chao v. Merino,
452 F.3d 174 (2d Cir. 2006) ................................................................................. 12
Cutaiar v. Marshall,
590 F.2d 523 (1979) ....................................................................................... 10, 20
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Federal Cases-(continued):
Eisenrich v. Minn. Retail Meat Cutters & Food Handlers Pension Plan, 574 F.3d 644 (8th Cir. 2009) ....................................................................... 8, 9, 21
Fifth Third Bancorp v. Dudenhoeffer, 134 S. Ct. 2459 (2014) ..................................................................................... 9, 25
Finley v. Special Agents Mutual Benefits Assoc., 957 F.2d 617 (8th Cir. 1992) ......................................................................... 5, 6, 9
Leigh v. Engle, 727 F.2d 113 (7th Cir. 1984) ......................................................................... 20, 22
Lone Star OB/GYN Assocs. v. Aetna Health Inc., 579 F.3d 525 (5th Cir. 2009) ......................................................................... 16 n.3
Louis J. Peterson v. UnitedHealth Group, Nos. 14-CV-2101, 15-CV-3064, --- F.Supp.3d ----, 2017 WL 991043 (D. Minn. 2017) ............................................................................................ passim
McCulloch Orthopaedic Surgical Servs., PLLC v. Aetna Inc., 857 F.3d 141 (2d Cir. 2017) ................................................................................. 23
Metro. Life Ins. Co. v. Glenn, 554 U.S. 105 (2008) ....................................................................................... 18, 21
Pascack Valley Hosp., Inc. v. Local 464A UFCW Welfare Reimbursement Plan, 388 F.3d 393 (3d Cir. 2004) .......................................................................... 16 n.3
Pegram v. Herdrich, 530 U.S. 211 (2000) ....................................................................................... 10, 20
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http:F.Supp.3d
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Federal Cases-(continued):
Pilger v. Sweeney,
725 F.3d 922 (8th Cir. 2013) ......................................................................... 18, 19
Quality Infusion Care, Inc. v. Health Care Serv. Corp.,
628 F.3d 725 (5th Cir. 2010) ......................................................................... 17, 18
Raymond B. Yates, M.D., P.C. Profit Sharing Plan v. Hendon,
541 U.S. 1 (2004) .................................................................................................. 17
Schoedinger v. United Healthcare of Midwest, Inc.,
557 F.3d 872 (8th Cir. 2009) .................................................................................. 3
Sec'y of Labor v. Fitzsimmons,
805 F.2d 682 (7th Cir. 1986) (en banc) .................................................................. 1
Shea v. Esensten,
107 F.3d 625 (8th Cir. 1997) ......................................................................... 12, 20
Standard Ins. Co. v. Saklad,
127 F.3d 1179 (9th Cir. 1997) ....................................................................... 14, 15
Wirth v. Aetna U.S. Healthcare,
469 F.3d 305 (3d Cir. 2006) ................................................................................. 12
Federal Statutes:
Employee Retirement Income Security Act of 1974, (Title I),
as amended, 29 U.S.C. 1001 et seq.:
Section 2, 29 U.S.C. 1001 ....................................................................................... 1
Section 403(c)(1), 29 U.S.C. 1103(c)(1) ........................................ 16, 17, 17 n.4
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Federal Statutes-(continued):
Section 404, 29 U.S.C. 1104 ....................................................... 9, 10, 17 n.4, 24
Section 404(a)(1), 29 U.S.C. 1104(a)(1) ...........................................................16
Section 404(a)(1)(A), 29 U.S.C. 1104(a)(1)(A) ................................... 16, 17, 22
Section 404(a)(1)(A)(i), 29 U.S.C. 1104(a)(1)(A)(i) .........................................10
Section 404(a)(1)(A)(ii), 29 U.S.C. 1104(a)(1)(A)(ii) ......................................10
Section 404(a)(1)(D), 29 U.S.C. 1104(a)(1)(D) ........................................... 9, 22
Section 405(a)(3), 29 U.S.C. 1105(a)(3) ...........................................................25
Section 406, 29 U.S.C. 1106 ......................................................................... 9, 10
Section 406(b)(1), 29 U.S.C. 1106(b)(1) .................................. 10, 10 n.2, 11, 13
Section 406(b)(2), 29 U.S.C. 1106(b)(2) ........................................ 10, 10 n.2, 13
Section 410(a), 29 U.S.C. 1110(a) ................................................................ 9, 25
Miscellaneous:
Dep't of Labor, Ofc of Pension and Welfare Benefits Programs (ERISA),
Advisory Op. 77-34A, 1977 WL 5397 (April 4, 1977) ........................................16
Dep't of Labor, Ofc of Pension and Welfare Benefits Programs (ERISA),
Advisory Op. 81-62A 1981 WL 17785 (July 21, 1981) ................................ 16, 17
Dep't of Labor, Ofc of Pension and Welfare Benefits Programs (ERISA),
Advisory Op. 97-16A, 1997 WL 277979 (May 22, 1997) ............................ 24, 26
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Miscellaneous-(continued):
Dep't of Labor, Ofc of Pension and Welfare Benefits Programs (ERISA),
Advisory Op. 2001-02A, 2001 WL 429857 (Feb. 15, 2001) ...............................25
Dep't of Labor, Ofc of Pension and Welfare Benefits Programs (ERISA),
Advisory Op. 2003-09A, 2003 WL 21514170 (June 25, 2003) .............. 24, 25, 26
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QUESTION PRESENTED
UnitedHealth Group ("United") is one of the worlds largest health insurers.
It adjudicated and paid health claims for plans governed by the Employee
Retirement Income Security Act of 1974 (ERISA), 29 U.S.C. 1001, et. seq.. At
times, United believed it overpaid a healthcare provider for services rendered to a
plan participant. United could have pursued the provider directly to recoup the
alleged overpayment. Instead, United took the payment it admits was due to the
same provider for services rendered to a different plan participant in a different
plan and kept it for itself, rather than pay the provider as required by the plan. That
practice deprived this second participant of benefits to which he was entitled and
exposed him to potential liability to the provider for the services rendered. This
practice is described as "cross-plan offsetting."
The question certified for interlocutory appeal is:
Whether United acted reasonably in interpreting ERISA-covered plans to
permit cross-plan offsetting?
THE SECRETARY'S INTEREST
The Secretary of Labor bears primary responsibility for interpreting and
enforcing Title I of ERISA. Sec'y of Labor v. Fitzsimmons, 805 F.2d 682, 698
(7th Cir. 1986) (en banc). In this capacity, he has a strong interest in ensuring that
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courts correctly and uniformly interpret ERISA and give appropriate deference to
the Department of Labor's relevant interpretive guidance.
STATEMENT OF THE CASE
A. Factual Background1
Plaintiffs Dr. Louis Peterson and Riverview Health Institute ("Plaintiffs")
are out-of-network providers who provided services to patients insured by ERISA-
covered health plans administered by United. United Br. 2. United administers
fully-insured health plans, for which United collects insurance premiums from the
employer's plans and then uses its own funds to pay claims. It also administers
self-insured plans, for which United uses the funds drawn from the employer
which sponsors the plan and the sponsor's employees to pay claims. Louis J.
Peterson v. UnitedHealth Group, Nos. 14-CV-2101, 15-CV-3064, --- F.Supp.3d ---
-, 2017 WL 991043 at *1 (D. Minn. 2017); see, e.g., Boyle v. Anderson, 68 F.3d
1093, 1097 (8th Cir. 1995) ("The [self-insured] plans are funded through
contributions by the covered workers and their employers."). In both
arrangements, United is responsible for adjudicating benefit claims and many
aspects of the plan's administration. Peterson, 2017 WL 991043 at *1. It is
undisputed that United is an ERISA fiduciary to both the self-insured and fully-
insured plans. United Br. 31 (acknowledging it was granted broad discretion over
1 These facts are derived from the District Court Opinion and undisputed facts in the record.
2
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plan administration); United Br. 29 (requesting deference as a fiduciary). Fully-
insured plans account for 22 percent of United's claim payments, the remainder
come from self-insured plans. Peterson, 2017 WL 991043 at *1.
United's health insurance plans generally cover both in-network and out-of-
network healthcare providers. United Br. 2. In contrast to in-network providers,
out-of-network providers do not have a pre-existing contractual relationship with
any employer-sponsored health plan or United; their relationship with the
employer-sponsored health plan or United is through the patient who is a plan
participant. Id.; see, e.g., Schoedinger v. United Healthcare of Midwest, Inc., 557
F.3d 872, 874-75 (8th Cir. 2009) (describing "out-of-network" relationship). The
patient-participants assign their rights to benefits under the health plan to the out-
of-network providers so that the providers may pursue reimbursement for their
services directly from the health plan. Peterson, 2017 WL 991043 at *3. Both
Plaintiffs are pursuing claims as assignees of the ERISA plan participants.
Separate Appendix of Appellants (SAPX), Vol. 1 pp. 205-213, 214-230. The
Plaintiff-providers filed their assigned claims with United. Peterson, 2017 WL
991043, at *3. United paid the claims but later determined that it had overpaid the
providers. United Br. 2. Instead of seeking recoupment of the alleged
overpayments directly from Plaintiff-providers, United engaged in "cross-plan
offsetting," a practice it started in 2007. Peterson, 2017 WL 991043 at *4.
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In this case, United recouped the alleged overpayment to a provider by
withholding a payment due to the same provider for services rendered to a different
plan participant in a different ERISA-covered plan and keeping it for itself. Id. To
recoup this overpayment using a subsequent payment admittedly due to the
provider from a self-insured plan, United transferred to itself the funds from the
self-insured plan due to the provider and did not pay the provider. Those funds
typically consisted of contributions from the plan sponsors, i.e., the employers, and
their employees. Id. To recoup the overpayment using a subsequent payment to
the provider from a fully-insured plan, United simply kept the money it would
have paid to the provider. Id.
The parties refer to the plans that overpaid the provider as "A plans." Id.
The plans United used to recoup overpayments through withheld or diverted plan
payments are "B plans." Id. None of these plans explicitly authorized cross-plan
offsetting. Id. at *6. The district court noted that "[i]n this litigation, every Plan
Athat is, every plan that made overpaymentswas fully insured . . . .
Conversely, the majority of the Plan Bs -- that is, the majority of plans from which
the overpayments were recovered -- were self-insured. . . . In other words, every
one of the cross-plan offsets at issue in this litigation put money in United's pocket,
and most of that money came out of the pockets of the sponsors of self-insured
plans." Id. at *4. In effect, for the offsets at issue, United withheld payments from
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self-insured plans (typically funded by the plan sponsor and its employees) and
diverted those payments to reimburse itself for overpayments United alleges it
made from its own account on behalf of fully-insured plans. As a result, the Plan
B participants were denied benefits from Plan B to which United admitted they
were entitled and the participants were exposed to liability to the provider for the
services rendered.
B. Procedural History
Riverview Health Institute and Dr. Peterson filed separate suits against
United as assignees of their patients, alleging that United violated its fiduciary
duties under ERISA and the terms of their patients' plans by engaging in cross-plan
offsetting. Plaintiffs contend that United breached its fiduciary duty of loyalty and
illegally diverted plan assets to itself. Peterson, 2017 WL 991043 at *3. The two
cases were consolidated.
The district court found that United did not reasonably interpret the Plan Bs
to permit cross-plan offsetting. Peterson, 2017 WL 991043 at *10. The court
applied the factors outlined in Finley v. Special Agents Mutual Benefits
Association, 957 F.2d 617 (8th Cir. 1992), to determine the reasonableness of
United's interpretation. The Finley factors are: "[(1)] whether [the] interpretation is
consistent with the goals of the Plan, [(2)] whether [the] interpretation renders any
language in the Plan meaningless or internally inconsistent, [(3)] whether [the
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plan] interpretation conflicts with the substantive or procedural requirements of the
ERISA statute, [(4)] whether [the administrator] has interpreted the relevant plan
language consistently; and [(5)] whether the interpretation is contrary to the clear
language of the Plan." 957 F.2d at 621.
After applying these factors, the court found that (1) "most of the plans
contain specific overpayment and recovery language that would be rendered
meaningless" if the plans were interpreted to permit cross-plan offsetting, a
practice not discussed in the plans; (2) United had not consistently interpreted any
plan language to permit cross-plan offsetting but only looked for authority in the
plan language after it got sued; and (3) cross-plan offsetting raised "serious
concerns under ERISA, especially in this situation, where United administers all of
the plans but insured only some of the plans." Peterson, 2017 WL 991043 at *10.
Based on these factors, the court found United's plan interpretation unreasonable,
and the practice of cross-plan offsetting not authorized by the plan documents. Id.
This Court granted the petition for interlocutory appeal. Id. at *11-12;
Order, 04/06/2017. The Secretary argues in this brief that United's cross-plan
offsetting violates ERISA.
SUMMARY OF THE ARGUMENT
1. United's practice of cross-plan offsetting violated United's fiduciary
duties under ERISA to act exclusively in the plan participants' interests and to
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provide participants their plan benefits and was self-dealing prohibited by ERISA.
United denied benefits to participants and exposed them to the risk of personal
financial liability and harm. When United refused to pay legitimate claims on
behalf of the participants of one plan ("Plan B") in order to recoup overpayments
on behalf of different participants in a separate plan ("Plan A"), United burdened
the participants in Plan B with the obligation to pay for services that should be
covered by their plan. United's conduct harmed the Plan B participants to further
the interests of unrelated participants in other plans. Moreover, these transactions
were structured by United to allow United to profit by recouping its own alleged
overpayments for its fully-insured plans that are funded through its own accounts
with payments from self-insured plans that are funded by plan sponsors and their
employees. United failed to act in the exclusive interests of Plan B participants or
for the purpose of providing them benefits as required by ERISA and engaged in
self-dealing transactions explicitly prohibited by ERISA.
2. United's defenses are meritless. United cites inapposite case-law and
regulatory guidance, while ignoring case-law and guidance that found similar
transactions violated ERISA's fiduciary duties and were prohibited by ERISA.
United also asserts three justifications: (a) United's conflict-of-interest is
permitted; (b) the practice is easier for United to recoup overpayment and,
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therefore, benefits its customers; and (c) United obtained "negative consent" from
the plans for this practice. Each defense fails.
a. While a conflict-of-interest is permissible under ERISA in some
circumstances, United was not just conflicted, but acted on interests adverse to the
plan and its participants in clear violation of ERISA.
b. United fails to refute the district court's conclusion that participants
are exposed to an unjustified risk of financial liability. Uniteds speculation about
benefits to its customers as a whole does not justify United's violation of its
statutory duties to protect individual plan participants from a risk of harm just to
recoup its unrelated overpayments.
c. No consent can absolve United of its statutory obligation to satisfy
its fiduciary duties. United mistakenly relies on regulatory guidance that concerns
"negative consent" in distinctly different circumstances concerning entities that are
not fiduciaries.
ARGUMENT
United Unreasonably Interpreted the Plan Documents to Permit Cross-Plan Offsetting Because the Practice Violates ERISA
A. Standard Of Review
Whether a fiduciary's interpretation of the plan document is contrary to
ERISA is reviewed de novo. Eisenrich v. Minn.Retail Meat Cutters & Food
Handlers Pension Plan, 574 F.3d 644, 648 (8th Cir. 2009). "Because the Plan may
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not disregard federal law, any decision that is 'erroneous as a matter of law' is an
abuse of discretion and cannot stand." Id. "Although we must defer to the Plan's
reasonable interpretation of the Plan itself, we owe no deference to the Plan's
interpretation of controlling law." Id. This standard governs the review and
outcome in this case; there is no need to rely on the Finley factors.
This de novo standard of review is especially appropriate because ERISA
does not permit a fiduciary to adhere to interpretations of plan documents that
violate ERISA and renders void any plan provision that relieves a fiduciary of his
responsibilities. See ERISA sections 404(a)(1)(D) and 410(a), 29 U.S.C.
1104(a)(1)(D) and 1110(a) ; see also Fifth Third Bancorp v. Dudenhoeffer, 134 S.
Ct. 2459, 2468-469 (2014); Central States, Se. & Sw. Areas Pension Fund, 472
U.S. 559, 568 (1985) ("trust documents cannot excuse trustees from their duties
under ERISA"). If a practice violates ERISA, the "reasonableness" of a fiduciary's
plan interpretation is irrelevant.
B. United's Practice Of Cross-Plan Offsetting Violates ERISA
United violated its duty of loyalty under ERISA section 404 and engaged in
a prohibited transaction in violation of ERISA section 406 by cross-plan offsetting.
As a fiduciary, United has a duty to "discharge [its] duties with respect to a plan
solely in the interest of the participants and beneficiaries and--(A) for the exclusive
purpose of: (i) providing benefits to participants and their beneficiaries; and (ii)
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defraying the reasonable expenses of administering the plan." ERISA section
404(a)(1)(A)(i), (ii), 29 U.S.C. 1104(a)(1)(A)(i), (ii) (emphasis added). This is
known as ERISA's fiduciary duty of loyalty. See generally Pegram v. Herdrich,
530 U.S. 211, 22425 (2000) (describing this duty as derived from the
"fundamental" duty of loyalty in trust law). United bears this fiduciary duty not
just to a plan but also to each plan participant. ERISA 404(a)(1)(A)(i), 29 U.S.C.
1104(a)(1)(A)(i). ERISA also prohibits a plan fiduciary from dealing with the
assets of the plan in the fiduciary's own interest and from acting in any capacity on
behalf of a party whose interest is adverse to those of the plan or plan participants
in transactions with the plan. ERISA 406(b)(1)-(2), 29 U.S.C. 1106(b)(1)-(2);2
see also Braden v. Wal-Mart Stores, Inc., 588 F.3d 585, 602 (8th Cir. 2009)
(applying ERISA Sections 404 and 406). In short, a fiduciary cannot represent
both sides in a transaction between a plan and another party, including another plan
to which he is a fiduciary. 29 U.S.C. 1106(b)(2). As the Third Circuit explained
in Cutaiar v. Marshall, 590 F.2d 523, 530 (1979), in discussing a fiduciary that
acted on behalf of two plans in a transaction with each other, section 406(b)(2)
requires that a plan "must be administered without regard for the interest of any
2 "A fiduciary with respect to a plan shall not -- (1) deal with the assets of the plan in his own interest or for his own account, (2) in his individual or in any other capacity act in any transaction involving the plan on behalf of a party (or represent a party) whose interests are adverse to the interests of the plan or the interests of its participants or beneficiaries." 29 U.S.C. 1106(b)(1)-(2).
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other plan." (emphasis added). "Fiduciaries acting on both sides of a . . .
transaction cannot negotiate the best terms for either plan. . . . each plan deserves
more than a balancing of interests. Each plan must be represented by trustees who
are free to exert the maximum economic power manifested by their fund whenever
they are negotiating a commercial transaction." Id. Furthermore, ERISA also
strictly prohibits a fiduciary from dealing in these transactions in its own interests.
29 U.S.C. 1106(b)(1). Based on the clear statutory text, United's practice of
cross-plan offsetting violated these fundamental protections.
As the district court found, United's practice exposed the Plan B participant,
whose medical bills were not paid because of an offset, to financial liability for
healthcare costs that should have been covered by his plan, because the out-of-
network provider could "balance bill" the participant for costs left unpaid by Plan
B when United diverted the Plan B's payment to itself. Peterson, 2017 WL 991043
at *8; 32nd St. Surgery Ctr., LLC v. Right Choice Managed Care, 820 F.3d 950,
956 (8th Cir. 2016) (describing "balance billing"). United does not dispute this
fact, conceding that out-of-network providers like Plaintiffs may "balance bill"
their patients as a result of United's cross-offsetting practice. United Br. 40.
United presents no legal or factual reason the district court's conclusion that
United's practice imposes this risk of harm on participants is erroneous. Id. The
participant's risk of not receiving benefits due and then incurring the risk of
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financial liability for covered services is clearly a harm United must prevent as a
fiduciary. See Shea v. Esensten, 107 F.3d 625, 628 (8th Cir. 1997) (fiduciary has a
duty to protect participant from a known risk of harm); see also Chao v. Merino,
452 F.3d 174, 182 (2d Cir. 2006) ("If a fiduciary was aware of a risk to the fund,
he may be held liable for failing to investigate fully the means of protecting the
fund from that risk."). This specific harm has been recognized by other courts.
See Wirth v. Aetna U.S. Healthcare, 469 F.3d 305, 309 (3d Cir. 2006) (recognizing
that benefits are not fully paid to the beneficiary when the plan seeks
reimbursement because they are "under something of a cloud"). Likewise, the Plan
Bs, funded by sponsoring employers and employees, have an interest to ensure that
their plan participants' benefits are truly paid and that the participants are not under
a cloud of liability for medical bills that are undisputedly covered by Plan Bs.
In addition to this risk of harm and the plan's interest in protecting its
participants, the district court also identified an underlying conflict of interest
when claims administrators like United administer both fully and self-insured
plans. Peterson, 2017 WL 991043 at *8. "As the single biggest payor of claims [,
because it pays more claims than the individual self-insured plans], United's
personal stake in cross-plan offsetting dwarfs that of any self-insured plan. An
administrator in this circumstance [, United] has every incentive to be aggressive
about looking for overpayments from its own fully insured plans (which
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overpayments can be recovered from self-insured plans) and less aggressive about
looking for overpayments from self-insured plans (which overpayments might be
received from fully insured plans)." Id. To recover overpayments made by fully-
insured plans from self-insured plans, United withholds the payment to providers
from the self-insured plans and diverts them to reimburse United's overpayment on
behalf of a fully-insured plan to that same provider; in the process, a payment from
an employer funding the self-insured plan is diverted to United as reimbursement
for United's overpayment made from its own pockets. United thereby deals with
self-insured plans in its own interests. United acts as the "judge, jury, and
executioner" for its own claim to recoup alleged overpayments. Peterson, 2017
WL 991043 at *3. United does not dispute that the potential for bias exists, but it
disputes its impact and extent and claims it took steps to mitigate potential bias.
United Br. 43-44. By executing these transactions, United committed a
prototypical self-dealing transaction in violation of the duty of loyalty and ERISA's
prohibited transaction provisions at section 406(b)(1) and (2) as these transactions
are adverse to the self-insured plans and their participants while also benefiting
United as their fiduciary.
In fact, United benefited from all the overpayment recoupments. Peterson,
2017 WL 991043 at *4. All 60 Plan As that allegedly overpaid service providers
were fully-insured plans, plans for which United made the original benefit payment
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from its own accounts. Id. In the overwhelming majority of the cross-plan offsets
at issue, the relevant Plan B was a self-insured plan, so the recoupments came from
funds contributed by a plan sponsor or its employees and were intended to go to
the provider but were diverted to reimburse United's alleged overpayment to the
provider for services to a Plan A participant. Id. In other words, "every one of the
cross-plan offsets at issue in this litigation put money in United's pocket, and most
of that money came out of the pockets of the sponsors of self-insured plans." Id.
United's internal documents confirm this intent. Id. The district court stated that
United's September 2004 internal documents "gush" that the new cross-plan offset
system "[a]llows recovery of fully insured overpayments on self-funded claim
payments!" Id. at 4. The court also referenced United's August 2004 presentation,
which stated, "[c]rossing policies for bulk recovery helps recover FI [fully insured]
dollars faster." Id. Finally, the court quoted a United 2005 chart showing
emphatically a "[f]ully insured o/p recovery on a [self insured] payment!" Id. The
evidence of United benefitting from these offset transactions by design only
confirms its violations of the duty of loyalty and the prohibited transaction
provisions as United plainly represented plans in transactions to further its own
self-interest.
An analogous case in the Ninth Circuit reinforces this conclusion. Standard
Ins. Co. v. Saklad, 127 F.3d 1179, 1182 (9th Cir. 1997). In Saklad, a disability
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insurer issued a lump-sum settlement to a claimant in 1984. Id. at 1180. Two
years later, the insurer discovered that the claim was fraudulent when it received
another disability claim from the same person, who was now employed at a
different company. Id. The second disability claim was legitimate, but the insurer
obtained a judgment against the employee for the prior fraudulent claim and sought
to setoff the payments under the first plan against any obligations owed to the
claimant under the second disability plan. Id. The court found that while the
insurer was a fiduciary of both plans "and the insurer of the benefits under both,
the fact remain[ed] that each plan is a separate entity." Id. at 1181. The court held
that setoff was illegal because "[a]n ERISA fiduciary cannot refuse to pay a
beneficiary of a plan by using a setoff from a wholly separate source of debt, be
that an ordinary debt or a debt to a wholly separate ERISA plan." Id. at 1182. This
decision is analogous to this case because it barred offsets that benefit the insurer
of one plan at the expense of a participant of another and supports the district
court's analysis.
In conclusion, United violated its fiduciary duties and committed prohibited
transactions when it imposed on innocent participants a financial risk and potential
harm in order to recoup an alleged, unrelated overpayment for another plan.3
3 Offsetting for in-network providers is distinguishable, because in-network providers typically have contractual relationships with the plans and insurers, removing any plan or participant interest in disputes over their payment amounts,
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C. Department of Labor Advisory Opinions Support the Conclusion that United's Practice of Cross-Plan Offsetting Violates ERISA
The Department of Labor issued two Advisory Opinions ("AOs") that
support the conclusion that United's cross-plan offsetting is prohibited by ERISA.
AO 77-34, 1977 WL 5397, and AO 81-62A, 1981 WL 17785. AO 77-34
considered the question of whether a fiduciary could reduce benefits under one
plan to remedy a participant's failure to repay overpayments from a sister plan.
The Department stated that such conduct violated both ERISA sections 403(c)(1)
and 404(a)(1), [29 U.S.C. 1103(c)(1) and 1104(a)(1)] reasoning that "problems
relating to another plan have no relevance to the plan in question." AO 77-34. The
Department explained that "if the plan pays amounts to another plan to reimburse
the other plan for erroneous payments . . . , such reimbursement would not
constitute a use of plan assets for the exclusive purpose of providing benefits to
participants in the plan . . . . Therefore, such payment would contravene the
requirements of section 404(a)(1)(A) and section 403(c)(1) of ERISA [exclusive
which are paid pursuant to those in-network contracts. See, e.g., Brown v. BlueCross BlueShield of Tenn., Inc., 827 F.3d 543, 549 (6th Cir. 2016); Lone Star OB/GYN Assocs. v. Aetna Health Inc., 579 F.3d 525, 530-31 (5th Cir. 2009); Pascack Valley Hosp. Inc. v. Local 464A UFCW Welfare Reimbursement Plan, 388 F.3d 393 (3d Cir. 2004). In these situations, the plan participants are not subject to financial risk because these contracts typically bar balance billing. Id.
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purpose provisions]."4 Likewise, Advisory Opinion 81-62A considered whether
funds from more than one benefit plan may be commingled. In response, the
Department cautioned that "if assets of more than one employee benefit plan are
held in a common vehicle, a separate accounting of the interest of each plan in
such vehicle must be maintained in order to avoid using the assets of one such plan
to pay benefits to participants and beneficiaries of another such plan in
contravention of section 403(c)(1) and 404(a)(1)(A)." United does not dispute the
district court's characterization of the analogous facts in this case: "In stark terms,
cross-plan offsetting involves using assets from one plan to satisfy debt allegedly
owed to a separate plan," Peterson, 2017 WL 991043 at *7. Thus, based on
analogous facts, the Department has interpreted ERISA to forbid a fiduciary to
multiple plans from using one plan to pay or recoup benefits for another, and this
Court should accord Skidmore deference to the Advisory Opinions. Raymond B.
Yates, M.D., P.C. Profit Sharing Plan v. Hendon, 541 U.S. 1, 18 (2004).
D. United's Defense Of Cross-Plan Offsetting Is Meritless
1. United Cites Inapposite Authorities
United mistakenly relies heavily on Quality Infusion Care, Inc. v. Health
Care Service Corp., 628 F.3d 725 (5th Cir. 2010). United Br. 32-33. In that case,
4 Like ERISA section 404, ERISA section 403(c)(1), 29 U.S.C. 1103(c)(1), requires that plan assets "shall be held for the exclusive purposes of providing benefits to participants in the plan and their beneficiaries and defraying reasonable expenses of administering the plan."
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the Fifth Circuit did not decide or even consider whether this practice violates
ERISA. Instead, the court considered only the "narrow legal dispute" as to
whether the practice was permitted under state contract law. Quality Infusion
Care, 628 F.3d at 726-28. The court concluded that under the terms of each plan,
the insurer had a contractual right to deduct the overpayment amount paid to a
provider on a patient's claim from the amount it owes that same provider for a
subsequent claim against one of the other two plans. Id. at 728. The court found
that "no language in any of the three plans required [the insurer] to confine its
contractual set off rights to deductions from subsequent benefit payments to the
same patient under the same plans." Id. at 730. As the district court correctly
observed in the present case, "whatever the merits of the Fifth Circuit's approach, it
is not the approach of the Eighth Circuit," which requires courts to consider the
fiduciary duties imposed by ERISA when interpreting ERISA plan provisions.
Peterson, 2017 WL 991043 at *9; see also Central States, 472 U.S. at 568;
Eisenrich, 574 F.3d at 648; see generally Metro. Life Ins. Co. v. Glenn, 554 U.S.
105, 115 (2008) ("ERISA imposes higher-than-marketplace quality standards on
insurers").
United also incorrectly relies on Pilger v. Sweeney, 725 F.3d 922 (8th Cir.
2013), which permitted same-plan offsets with respect to the same participant, but
this decision does not extend to cross-plan offsets for different participants. In
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Pilger, this Court allowed a pension fund to recoup overpayments mistakenly paid
to retired participants by withholding future payments to those same participants of
the same plan. 725 F.3d at 924. As the district court stated, Pilger dealt with
offsets involving "not only the same plan, but the same beneficiaries." Peterson,
2017 WL 991043 at *9. Although the pension plan contained no language
expressly permitting the recoupment through withholding, this Court held that the
fund was authorized by "the broad language granting Defendants discretion to take
remedial action on behalf of the [plan]." Pilger, 725 F.3d at 926. In sum, Pilger
only addressed the plan's relationship to a specific participant. The rationale in
Pilger rested on the plan's ability to ensure each participant does not receive more
than the share of plan benefits he deserves. "Fiduciary obligations extend
primarily to the plan as it relates to all beneficiaries, not just to individual
claimants." Barnhart v. UNUM Life Ins. Co. of Am., 179 F.3d 583, 589 (8th Cir.
1999). This principle clearly does not apply here where a plan participant is
deprived of the benefits to which he is entitled in order to reimburse an
overpayment for a different plan and a different participant.
2. United's Purported Justifications Cannot Override ERISA
United also raises other meritless justifications: (a) United's conduct in the
cross-plan offset program arose from a permissible conflict-of-interest; (b) United's
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program benefits its customers overall; and (c) Uniteds conduct is justified
because no party contested its overpayment claims.
a. United's Violations Are Not a Permissible "Conflict-of- Interest"
United is correct that ERISA permits conflicts of interest in some
circumstances, but the pertinent question here is how the fiduciary acts in light of
this conflict, not whether a conflict exists. See Pegram, 530 U.S. at 225 ("ERISA
does require, however, that the fiduciary with two hats wear only one at a time, and
wear the fiduciary hat when making fiduciary decisions."). The answer to that
question in ERISA is clear. "The central issue is the independence of the plan
fiduciaries who must always be able to act solely for the benefit of those whose
funds are entrusted to them." Leigh v. Engle, 727 F.2d 113, 132 n.29 (7th Cir.
1984) (emphasis added). Fiduciaries must take practical actions to avoid acting on
interests adverse to the plan.
United's actions fit within well-established ERISA cases where a conflicted
fiduciary violated ERISA by acting on behalf of its own or other interests to the
detriment of the plan or its plan participants. See, e.g., Shea, 107 F.3d at 628;
Braden, 588 F.3d at 598; Cutaiar, 590 F.2d at 530. As in those cases, United
executed transactions for the plans it administered in which United represented
both sides of the transactions and chose to harm the plan and participants by
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exposing participants to a risk of financial liability while reaping benefits from
those transactions.
United incorrectly relies on Glenn, which addressed how a structural conflict
of interest affects the judicial deference accorded to conflicted fiduciaries who
interpret plan documents. 554 U.S. at 115. Glenn is irrelevant here, where United
has acted in violation of ERISA by executing transactions against the plan and
participants' interests and depriving participants of their benefits to further United's
own interests. Obviously, no deference is accorded to the fiduciary defending an
action that is itself a clear violation. E.g., Eisenrich, 574 F.3d at 648 ("Whether the
Plan's decision is erroneous as a matter of law is a question we review de novo.").
b. Alleged "Overall" Benefits To Its Customers Cannot Justify Violations
United also argues that cross-plan offsetting benefits all customers, United
Br. 42, and therefore the practice must benefit each plan and its participants.
Neither facts nor logic support this conclusion, as the district court found. United
cannot show that no plans or participants were burdened with a risk of harm by this
practice, see Peterson, 2017 WL 991043 at n.5 (discussing the absence of
evidence). Nor is such a result likely as nothing in United's description of its
cross-plan off-setting program ensures each plan or participant is guaranteed to
only benefit from the practice. Cf. United Br. 17-18. United's obligation under
ERISA is to keep an "eye single" to the plans and participants' interests in all
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fiduciary actions and plan transactions and to provide participants the benefits
promised in the plan documents. Leigh, 727 F.2d at 123; 29 U.S.C.
1104(a)(1)(A) and (D). Instead of ensuring that United provides benefits to
participants, United deprives plan participants of their benefits on behalf of other
plans in order to reap a financial benefit for itself. As the district court concluded,
the evidence presented establishes United as the true beneficiary from the cross-
plan offset practice, Peterson, 2017 WL 991043 at *4.
c. Failure to Contest Overpayment Is Irrelevant
United also contends on appeal that because neither the provider or the Plan
A patient-participant disputed United's claim that it made an overpayment, United
is justified in recovering an overpayment from the provider's subsequent Plan B
patient-participant, see United Br. 10-12; see also Peterson, 2017 WL 991043 at
*6, fn. 8. United misses the point. United cannot burden an innocent participant
with debt due to an overpayment United made on behalf of a different participant
in a different plan for its own self-interest. Uniteds ERISA violations cannot be
absolved simply by instituting some mechanism to protest overpayments.
Specifically, the provider's or his Plan A patient's alleged failure to dispute
the overpayment has no bearing on the risk of harm imposed on the Plan B patient
from whom the overpayment amount is taken, because that Plan B patient cannot
force the provider or the Plan A patient to dispute the overpayment. Moreover, as
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United admits, overpayments could be caused by United's own "administrative
mistakes," United Br. 10, making it unfair for providers or patients to bear the
harm from those alleged mistakes by placing the burden on the provider or patient
to challenge these "mistakes" while also imposing on the providers' subsequent
patients the risk of financial liability and harm for these mistakes. Id.
Furthermore, even assuming cross-plan offsetting was permitted, no
mechanism actually exists for the Plan B participants to challenge an overpayment
made on behalf of different participants in Plan A. Absent any contractual
relationship with out-of-network providers, United has no legal basis to require
providers to pursue administrative remedies to dispute the overpayment claims
and, in some circumstances, providers may seek remedies under state law to
resolve the disputes. Cf. Access Mediquip LLC v. UnitedHealthcare Ins. Co., 662
F.3d 376, 386 (5th Cir. 2011) (alleged right to payment by out-of-network provider
did not depend on the terms of the ERISA plan but on oral promises), reinstated,
698 F.3d 229 (5th Cir. 2012) (en banc); McCulloch Orthopaedic Surgical Servs.,
PLLC v. Aetna Inc., 857 F.3d 141, 150 (2d Cir. 2017) (same). United is also free
to contract with frequent out-of-network providers to address these specific issues,
by insulating the patient and his plan from these disputes similar to in-network
providers. See 32nd St. Surgery Ctr., LLC, 820 F.3d at 956 ("ancillary contracts");
supra note 3. United did not do so here.
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3. Plans Cannot Consent To United's Practice Of Cross-Plan Offsetting Through "Negative Consent"
United argues that cross-plan offsetting is permitted because the plan
sponsor or "relevant fiduciary decision-maker" provided "negative consent" to the
practice through a 2007 letter. United Br. 45. In support of this "negative consent"
argument, United relies on three Department of Labor Advisory Opinions, Nos.
2003-09A, 2001-02A, and 1997-16A, which, for reasons discussed below, are
inapposite. Moreover, United fails to address more pertinent Advisory Opinions,
discussed supra at Section C.
United's reliance on the "negative consent" Opinions is incorrect for several
reasons.5 First, whether a plan sponsor or other fiduciary consented to cross-plan
offsetting is immaterial here, where United's practice at issue violates ERISA.
Negative consent can be relied on in certain instances concerning otherwise
legitimate transactions as explained below, but cannot be relied upon to allow an
ERISA violation to stand. Therefore, United cannot use the Department's
Advisory Opinions to absolve it from fiduciary responsibility for a claims payment
practice that violates ERISA. As a fiduciary, United will always have the
responsibility not to commit fiduciary breaches even if another fiduciary permitted
the conduct whether by direct or negative consent. See 29 U.S.C. 1104 (listing
5 Courts accord heightened deference to agencies when they interpret their own guidance even in amicus briefs. Cf. Auer v. Robbins, 519 U.S. 452, 462-63 (1997).
24
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fiduciary obligations required by statute), 1105(a)(3) (co-fiduciary liability for
failure to remedy a known breach by another fiduciary); 1110(a) (with irrelevant
exceptions, "any provision in an agreement or instrument which purports to relieve
a fiduciary from responsibility . . . for any . . . duty under this part shall be void as
against public policy"). As we noted earlier, if plan documents cannot permit
fiduciary breaches, see Dudenhoeffer, 134 S. Ct. at 2468, it would make no sense if
fiduciaries could obtain consent to commit such breaches.
Second, the Advisory Opinions on "negative consent" concern the narrow
context where a non-fiduciary service provider seeks confirmation that reliance on
"negative consent" in activating an investment default option on behalf of the plan
will not render the service provider a fiduciary with respect to that decision. For
example, in Advisory Opinion 2001-02A, a service provider to a 401(k) pension
plan asked the Department whether it would become a fiduciary if it implemented
a "default option" after presenting the "option" to plan administrators in two letters
and the administrator did not reply. The Department agreed that the service
provider would not be serving as a fiduciary for activating that option "as long as
the plan fiduciary actually chooses the default allocation." AO 2001-02A. The
Department noted that "whether a fiduciary actually chooses the default allocation
is an inherently factual question." Id.; see also AOs, 200309A (applying the principle to bundled service arrangement where service provider offers proprietary
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mutual funds along with other services but does not become a fiduciary if the
provider discloses the options and obtains negative consent); 199716A (applying the principle to a reallocation of assets or investment menus). According to these
Opinions, the service providers under the facts in those opinions could rely on
negative consent for those limited purposes only if the provider (1) disclosed all
material information, (2) gave the plan sponsor a reasonable time to consider
whether to opt out of the new menu, and (3) remained neutral and took care to
ensure that each client's decision was truly his own. AOs. 97-16A, 2003-09A.
This case presents an entirely different situation. Here, United is already a
fiduciary who must adhere to his ERISA duties. United cannot absolve
responsibility for its violations by pointing to its clients' negative consent. Thus,
the Advisory Opinions are irrelevant.
The Department agrees with the district court that even assuming the
Advisory Opinions were relevant, the evidence showed that United did not meet
the conditions required by the Advisory Opinions for negative consent to be
effective. United "did not fully and accurately disclose all material information to
its clients. Some clients may not have received any information about cross-plan
offsetting, and those who did get information were not told that United itself would
be the largest single beneficiary of the cross-plan offsetting system that it was
proposing." Peterson, 2017 WL 991043 at *10 (emphasis in original). When
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United did present some information on its cross-plan offsetting practice, United
"certainly did not remain neutral and take care to ensure that each client's decision
was truly its own; instead, United 'strongly encouraged' its clients to participate in
cross-plan offsetting." Id.
Full disclosure and consent cannot excuse the violation here because neither
a fiduciary, a plan sponsor, nor anyone else can consent to ERISA violations and
harm participants. It is difficult to imagine how an effective disclosure regime
would work, even if ERISA permitted United's cross-plan offsetting process,
which it does not. Hypothetically, if United wanted to provide its clients
meaningful disclosure of its cross-plan offsetting practice, United would have to
reveal the risk of harm to plan participants. United would have to disclose that the
practice exposes plan participants to risks of personal financial liability for their
covered medical claims because United may have to recoup overpayments,
sometimes caused by its own mistake, made to a provider on behalf of a different
participant in a different plan. United would also have to disclose that plan
participants cannot predict whether a medical claim will be paid in full, because a
claim may be subject to a random and retroactive offset unrelated to them, their
plan, or their covered medical claim. Nothing in the record identifies any such
disclosure by United.
CONCLUSION
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For the foregoing reasons, the Secretary requests that this Court affirm the
district court's ruling that United's plan interpretations were unreasonable and its
cross-plan offsetting practice, as described in this case, violates ERISA.
Respectfully submitted,
NICHOLAS C. GEALE Acting Solicitor of Labor
G. WILLIAM SCOTT Associate Solicitor for Plan Benefits Security
THOMAS TSO Counsel for Appellate Litigation
_/S/ Susanna Benson____ SUSANNA BENSON Senior Attorney Plans Benefits Security Division Office of the Solicitor U.S. Department of Labor 200 Constitution Ave., N.W., N-4611 Washington, DC 20210 (202) 693-5682
28
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CERTIFICATE OF COMPLIANCE
Pursuant to Fed. R. App. P. 29(d) and 32(a)(7)(B)-(C), I certify that this amicus brief uses a mono-spaced typeface of 14 characters per inch and contains 6,475 words.
Dated: September 5, 2017
/s/ Susanna Benson SUSANNA BENSON Senior Attorney United States Department of Labor Plan Benefits Security Division 200 Constitution Ave., N.W., N-4611 Washington, D.C. 20210
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CERTIFICATE OF SERVICE
I hereby certify that on this 5th day of September, 2017, I electronically filed the foregoing Brief of the Secretary, United States Department of Labor, as Amicus Curiae, in Support of Plaintiffs-Appellants, with the Clerk of the Court for the United States Court of Appeals for the Eighth Circuit by using the CM/ECF system. I certify that all participants in this case are registered CM/ECF users and that service will be accomplished by the CM/ECF system.
/s/ Susanna Benson SUSANNA BENSON Senior Attorney United States Department of Labor Plan Benefits Security Division 200 Constitution Ave., N.W., N-4611 Washington, D.C. 20210
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CERTIFICATE OF SERVICE
I hereby certify that on this 13th day of September, 2017, I sent 10 paper copies of the foregoing Brief of the Secretary, United States Department of Labor, as Amicus Curiae, in Support of Plaintiffs-Appellants, to the Clerk of the Court for the United States Court of Appeals for the Eighth Circuit. I also served a paper copy on each party separately represented.
/s/ Susanna Benson SUSANNA BENSON Senior Attorney United States Department of Labor Plan Benefits Security Division 200 Constitution Ave., N.W., N-4611 Washington, D.C. 20210
TABLE OF AUTHORITIESQUESTION PRESENTEDTHE SECRETARY'S INTERESTSTATEMENT OF THE CASEA. Factual Background1B. Procedural History
SUMMARY OF THE ARGUMENTARGUMENTA. Standard Of ReviewB. United's Practice Of Cross-Plan Offsetting Violates ERISAC. Department of Labor Advisory Opinions Support the Conclusionthat United's Practice of Cross-Plan Offsetting Violates ERISAD. United's Defense Of Cross-Plan Offsetting Is Meritless1. United Cites Inapposite Authorities2. United's Purported Justifications Cannot Override ERISAa. United's Violations Are Not a Permissible "Conflict-of-Interest"b. Alleged "Overall" Benefits To Its Customers Cannot JustifyViolationsc. Failure to Contest Overpayment Is Irrelevant
3. Plans Cannot Consent To United's Practice Of Cross-PlanOffsetting Through "Negative Consent"
CONCLUSIONCERTIFICATE OF COMPLIANCECERTIFICATE OF SERVICECERTIFICATE OF SERVICE
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